[Congressional Record Volume 141, Number 1 (Wednesday, January 4, 1995)]
[Extensions of Remarks]
[Pages E1-E2]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                         REPEAL OF SECTION 903

                                 ______


                      HON. JAMES A. TRAFICANT, JR.

                                of ohio

                    in the house of representatives

                       Wednesday, January 4, 1995
  Mr. TRAFICANT. Mr. Speaker, the United States taxes the income of its 
citizens and corporations whether it is earned at home or abroad. The 
U.S. foreign tax credit provides relief to U.S. taxpayers from the 
double-taxation so they will not determine where a company invests. 
Nevertheless, when Congress adopted the section 903 of the Internal 
Revenue Code, an unfair tax advantage was given to companies that 
invest abroad. For that reason, I have introduced legislation to repeal 
section 903.
  Mr. Speaker, section 903 extends credibility to those foreign taxes 
imposed in lieu of foreign income taxes. This means that all foreign 
taxes such as foreign sales, excise, and value added taxes are 
creditable as business costs towards their foreign taxes paid. There is 
no constraint on the type of foreign tax that can be credited. This 
leaves domestic U.S. companies at a distinct disadvantage. They are 
only able to deduct taxes that are in lieu of income taxes.
  Mr. Speaker, section 903 was enacted in 1942 when certain countries 
taxed companies on a different basis from our concept of net income. 
These countries were less sophisticated and imposed taxes on a gross 
income basis, while the United States concept of net income had become 
quite refined. In order to make up for the difference, Congress 
extended credit to all foreign taxes. Since 1942, however, foreign tax 
systems have become quite sophisticated. Thus, the scope of section 903 
has been expanded to include a credit for taxes paid to foreign 
countries in lieu of foreign income tax.
  Mr. Speaker, creditable foreign taxes must be limited to income taxes 
and taxes of similar nature. This is because under present law indirect 
taxes and other taxes in lieu of taxes can be shifted onto either 
consumers or labor. A tax is shifted when a corporation is able to 
maintain its profits at their pre-tax level despite paying an income 
tax by raising prices. Therefore, these companies are receiving relief 
from a tax burden in the form of tax credits that they do not bear. The 
consumers and workers incur part of the burden of the tax.
  Mr. Speaker, the foreign tax credit should be designed to provide 
relief from double-tax- 
[[Page E2]] ation and to make sure that tax incentives do not exist. 
Taxes in lieu of should instead be deductible to relieve only the 
portion of the tax borne by the taxpayer. Until section 903 is 
repealed, more countries may adjust their tax laws in order to take 
advantage of section 903. In my district, thousands of jobs have been 
lost when companies moved their operations overseas. It is appalling to 
think that our tax system gave them incentives to do so.
  Mr. Speaker, I urge all Members to cosponsor this important piece of 
legislation.


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